How The China-Australia FTA Will Affect Agribusiness

It was recently described by our new Prime Minister Malcom Turnbull as “one of the most important foundations of our prosperity” and one of his key reasons for contesting the prime ministership.

He was referring to the China-Australia Free Trade Agreement (ChAFTA), a monumental economic deal which this month had legislation introduced into Parliament to support its implementation.

The potential ramifications of the agreement make it a hotly debated topic with Prime Minister Turnbull facing stiff resistance from unions and the federal opposition in his efforts to push it over the line.

Most of this resistance stems from the deal?s proposed labour agreements and whether or not it provides protection for Australian< workers and their jobs, hence why the unions are particularly concerned.

One of the sectors to be most impacted by the ChAFTA is Australia?s agribusiness industry.

What are the facts of China-Australia Free Trade Agreement (FTA)?

The ChAFTA is not straightforward – it has been negotiated between Australia and China over the past decade and its official document in both English and Chinese is over 1,000 pages long. Read it here if you dare.

Put simply, it aims to lower the barriers to trade and investment between Australia and China through reduced/eliminated tariffs for many of our agricultural, resources, energy and manufactured exports. If you aren?t aware, tariffs are taxes imposed on imported goods by governments – usually in order to protect domestic industries and allow them to compete with cheaper foreign imports. The ChAFTA will also provide increased permissions and market access for suppliers of services in both countries.

As Australia?s largest trading partner, buying nearly $98 billion worth of our exports last year, the ChAFTA aims to lock in this relationship and secure markets for our local industries – thus safeguarding Australia?s economic future. For Australian agribusiness, this deal is particularly important with the Chinese market worth $8 billion to the sector.

The sticky point of the ChAFTA is the possible threat to Australian workers. There is debate amongst politicians and union leaders as to whether or not the agreement allows Chinese firms to bring in foreign workers to Australia without assessing Australian workers first. Without the deal, foreign companies have to apply to the department of immigration to be allowed to bring in their own workers. With the ChAFTA, they don?t have to do this, but the import of those workers is still subject to migration law.

Pros and Cons of ChaFTA: How will it impact Agribusiness?

Pros:

The ChAFTA has been almost universally welcomed by the agribusiness sector in Australia. Many farmers are excited about the prospect of increased demand for their goods through the reduction and removal of tariffs on their exports in China. The dairy, beef, wine and wool industries are amongst the most affected by these reductions. According to the Department of Foreign Affairs and Trade (DFAT) these, will be their tariff outcomes:

• Dairy: tariffs up to 20 per cent eliminated within 4 to 11 years.
• Beef: tariffs of 12 to 25 per cent eliminated over 9 years
• Wine: tariffs of 14 to 20 per cent eliminated over 4 years
• Wool: a new Australia-only duty free quota, in addition to continued access to China?s WTO quota.

Amongst many others, Australian exporters of barley will also get a significant boost through the immediate removal of their 3 percent tariff. China is Australia?s largest export market for barley with this trade worth $995 million last year.

Cons

For the parts of the sector that don?t trade with China or missed out on reduced tariffs, there might be lower production as a result of the ChAFTA. Goods that missed out on tariff reductions included wheat and oilseeds (canola). According to Deloitte, the agreement could influence the exchange rate to the detriment of these industries and trigger a switch of activity. This refers to more production of the goods generating more profit and less production of the goods that generate less profit as a result of the ChAFTA.

Chafta: farmer and unions opinion

FOR

Farmers: Australian farmers are very keen for the ChAFTA to go through. So much so, that they are pleading for government to ratify it as soon as possible. Dairy farmers are even threatening to march on Melbourne if it doesn?t pass parliament soon. National Farmers Federation President Brent Finlay had this to say about the ChAFTA:

“This agreement is a game-changer: it?s a golden ticket to the world?s second largest marketplace, comprising of 1.3 billion consumers eager for Australian products and services. It?s an opportunity to supercharge the Australian economy at a time when access to larger markets is desperately needed, particularly for our agriculture sector.”

AGAINST

Unions: Backed by the federal opposition, the unions are concerned that the ChAFTA will pose a threat to local workers by allowing Chinese firms to bring in their own labour for projects valued over $150 million. Australian Council of Trade Unions President Ged Kearney summed up the union?s feelings in this sentence:

“Free trade agreements must support local jobs and industry and all indications are that the deal with China does not.”